Taxes Consolidation Act 1997 section 687

Treatment of losses

Section 687 establishes a ring-fence around petroleum trade profits and losses, restricting the set-off of losses and surplus capital allowances where petroleum activities are involved.

• Trading losses from a petroleum trade can only be relieved against income or profits from petroleum activities, and losses from other trades (except mining) cannot be relieved against petroleum income or profits — a two-way ring-fence.
• Schedule D Case IV income from petroleum activities cannot be reduced by losses from other Case IV sources, and Case IV petroleum losses cannot reduce other Case IV income — another two-way ring-fence.
• Surplus capital allowances (such as wear and tear or industrial buildings allowances) that are relieved by discharge or repayment of tax, or in charging Case V income, cannot be set off against petroleum income or profits — a one-way ring-fence.
• The combined effect is to isolate petroleum activities from all other trading and investment activity for loss relief and capital allowance purposes.